Lifetime Fitness 2006 Annual Report Download - page 31

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(8) EBITDA consists of net income plus interest expense, net, provision for income taxes and depreciation and
amortization. This term, as we define it, may not be comparable to a similarly titled measure used by other
companies and is not a measure of performance presented in accordance with GAAP. We use EBITDA as a
measure of operating performance. EBITDA should not be considered as a substitute for net income, cash
flows provided by operating activities or other income or cash flow data prepared in accordance with GAAP.
The funds depicted by EBITDA are not necessarily available for discretionary use if they are reserved for
particular capital purposes, to maintain debt covenants, to service debt or to pay taxes. Additional details
related to EBITDA are provided in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Non-GAAP Financial Measures.”
The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to
EBITDA:
For the Year Ended December 31,
2006 2005 2004 2003 2002
(In thousands)
Net income.........................................................
.
$ 50,565 $ 41,213 $ 28,908 $ 20,605 $ 7,421
Interest expense, net...........................................
.
17,356 14,076 17,573 19,132 14,950
Provision for income taxes ................................
.
33,513 26,758 20,119 15,006 5,971
Depreciation and amortization ...........................
.
47,560 38,346 29,655 25,264 20,801
EBITDA.............................................................
.
$148,994 $120,393 $ 96,255 $ 80,007 $ 49,143
(9) EBITDA margin is the ratio of EBITDA to total revenue.
(10) Capital expenditures represent investments in our new centers, costs related to updating and maintaining our
existing centers and other infrastructure investments. For purposes of deriving capital expenditures from our
cash flows statement, capital expenditures include our purchases of property and equipment, excluding
purchases of property and equipment in accounts payable at year-end, and property and equipment purchases
financed through notes payable and capital lease obligations.
(11) The operating data being presented in these items include the center owned by Bloomingdale LLC. The data
presented elsewhere in this section exclude the center owned by Bloomingdale LLC.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our historical results of operations and our liquidity and capital resources should be
read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this
report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those discussed in “Risk Factors” beginning on page 13 of this report.
Overview
We operate sports and athletic, professional fitness, family recreation and resort/spa centers. As of February 28,
2007, we operated 60 centers primarily in residential locations across 13 states under the LIFE TIME FITNESS
brand. We commenced operations in 1992 by opening centers in the Minneapolis and St. Paul, Minnesota area.
During this period of initial growth, we refined the format and model of our center while building our membership
base, infrastructure and management team. As a result, several of the centers that opened during our early years have
designs that differ from our current model center.
We compare the results of our centers based on how long the centers have been open at the most recent
measurement period. We include a center for comparable center revenue purposes beginning on the first day of the
thirteenth full calendar month of the center’s operation, prior to which time we refer to the center as a new center.
As we grow our presence in existing markets by opening new centers, we expect to attract some memberships away
from our other existing centers already in those markets, reducing revenue and initially lowering the memberships of
those existing centers. In addition, as a result of new center openings in existing markets, and because older centers
will represent an increasing proportion of our center base over time, our comparable center revenue may be lower in